Are ATMs the Right Channel for Serving the Underbanked?

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The automated teller machine — a technology that dates to the 1960s — is taking on new relevance in the age of digital banking.

Modern ATMs, which bankers now call devices, can dispense $1 and $5 bills. Some are equipped with video tellers that can connect customers to offsite financial experts. Others even allow consumers to pre-stage a cash withdrawal at an ATM via a mobile app instead of inserting a card.

Next up: the ATM Industry Association is brainstorming ways the machines can be better used to help reach unbanked and underbanked consumers. Sending money to someone, paying bills, and loading a portion of a check onto a prepaid card are among the types of transactions the group is envisioning can take place through ATMs.

"The knowledge and awareness of what can be done at the ATM is something we are advocating for," says David Tente, the executive director of ATMIA.

The global nonprofit trade association, which includes bank members, is gearing up to launch a dedicated forum that will discuss how ATMs can better serve the underbanked and unbanked, and to foster best practices and new ideas that go deeper than using ATMs to cash checks or withdraw cash from preloaded electronic benefit transfer cards and other products.

The ATMIA forum plans to host its first teleconference on April 30 and then meet at least bi-monthly — depending on the team's scheduling preferences.

The forum is designed to bring attention to what forward-looking technology is already available —like dispensing gift cards through ATMs — and to accelerate the development of new features that could benefit folks who use banking services sparingly or have no banking relationship at all.

This subset of consumers may be be reticent about going into branch but feel comfortable using a do-it-yourself channel, says Tente, whose organization counts 4,000 members in 60 countries.

Tente says his group is exploring ways to help heavy cash users do things such as pay bills or send money to another country using an ATM, but without having to use an ATM card. He argues that there is no reason to force someone to use a card to send money elsewhere when there are other methods to authenticate someone. In some countries, for example, ATMs use biometrics to identify users.

Tente anticipates the forum will also address prepaid opportunities.

Tente acknowledges that some consumers might be reluctant to use a bank's ATM to pay a bill or wire funds, so his group is also working with — and likely including — independent ATM operators whose machines might be located in convenience stores, gas stations and other nonbank locations.

"If the first step in converting an unbanked person to a banked person is a trip to an ATM to cash a check, for example, some might actually prefer a nonbank ATM," says Tente.

ATMIA is one of several organizations seeking innovative ways to reach unbanked and underbanked consumers.

American Express is expected to launch an innovation lab geared to the group in June, while the Center for Financial Services Innovation continues its work with the New York University's Financial Initiative and Bankable Frontier Associates to chronicle the daily struggles of low-to-medium income individuals. The aim of the research is to better understand how these individuals budget their money and, in turn, what products and services could be developed to meet their needs.

The establishment of ATMIA's forum also comes at a time when ATM providers are rethinking ways to remain relevant in an era where consumers are increasingly using their mobile phones and tablets to conduct everyday transactions.

Devon Watson, the vice president of new business and solution incubation at Diebold, envisions an ATM of the future that could let low-wage workers who are paid in cash pay their monthly bills via an ATM.

Next-generation ATMs could also work like machines run by Tio Networks that let individuals without bank accounts pay their bills. Cash deposited in these sort-of reverse ATMs can be used to pay a bill and if consumers overpay, their accounts would be credited for the next time.

"The challenge is ATMs have not been able to provide more value than cash withdrawals," says Hamed Shahbazi, chief executive officer of Tio. "We have our work cut out for us, but I believe [other transactions] can be done."

To be sure, some of these ideas could face existing competition from younger companies that already cater to the unbanked and underbanked. PayNearMe, for example, is a cash transaction network that helps consumers who don't have credit or debit cards make purchases online, among other things. It has 17,000 retail partners, including the convenience chain 7-Eleven. Then, check-cashing services located within retail shops have been in place for years and years.

Analysts are skeptical that bank-operated ATMs will have a role in catering to the unbanked and underbanked.

Ron Shevlin, a senior analyst at Aite, says it would likely be a huge stretch for banks to retool their systems to handle nonbank account information, arguing that mobile is the channel that could best serve these consumers. And, in his view, ATMs are a less appropriate place for selling products altogether — should that be the vision. It "doesn't fit in with how consumers do business," Shevlin says, pointing out how the channel should not create reasons to hold up a line.

Still, software companies are cooking up newer features available at ATMs that are designed to be as quick as getting a $20. Take Better ATM Solutions. The software vendor has pilots in place where credit unions' ATMs dispense gift cards that only activate after they come out of the machine.

"I think there is a lot of life in adding more feature sets to the ATM," says Todd Nuttall, chief executive officer of Better ATM Solutions. "People use whatever is convenient for them."

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